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Cannabis Distributors: Information on Collecting and Paying the Cannabis Excise Tax

Cannabis Distributors: Information on Collecting and Paying the Cannabis
Excise Tax

As a licensed cannabis distributor, you are required to collect the cannabis excise tax from retailers you supply with cannabis or cannabis products (cannabis). There may be instances when there are multiple distributors involved in the transaction. You are responsible for collecting the excise tax if you are the distributor that does the following:

  • Sells and/or invoices cannabis to the retailer; or
  • Transfers cannabis to the retailer on behalf of a manufacturer or cultivator.

You must provide the retailer an invoice or receipt indicating, among other requirements, the amount of cannabis excise tax collected. You are required to report (based on the average market price) and pay the cannabis excise tax to the California Department of Tax and Fee Administration (CDTFA) in the reporting period in which you sell or transfer the cannabis to the retailer.

The Bureau of Cannabis Control (Bureau) is the state agency that regulates the requirements for all licensed distributors. A Distributor-Transport Only licensee (Type 13) may transport cannabis goods between licensees; however, they shall not transport any cannabis goods, except for immature cannabis plants and seeds, to a licensed retailer or licensed microbusiness authorized to engage in retail sale. If you are a Distributor licensee (Type 11) that provides transportation services for another licensed distributor and transport cannabis to a retailer on behalf of the distributor that sells and/or invoices the cannabis to the retailer, you are not responsible for the collection or payment of the cannabis excise tax. You should maintain documentation, such as a shipping manifest or invoice between the two distributors that indicates that the transaction between the distributors is for transportation services only and the cannabis excise tax was not collected.

Cannabis Distributors: Information on Collecting and Paying the Cultivation Tax

Cannabis Distributors: Information on Collecting and Paying the Cultivation Tax

As a licensed cannabis distributor (excluding transport-only distributors), you are required to collect the cultivation tax from cultivators, manufacturers, or other distributors based on the weight and category of the cannabis. The distributor who conducts the final quality assurance review after the cannabis or cannabis product passes the required testing is the distributor responsible for reporting and paying the cultivation tax to the California Department of Tax and Fee Administration (CDTFA). The cultivation tax must be reported during the reporting period in which the cannabis or cannabis product passes the required testing and quality assurance review, which is when the cannabis or cannabis product enters the commercial market.

In instances where there are multiple distributors and/or manufacturers involved, the associated cultivation tax collected will follow the cannabis or cannabis product and must be passed to the next licensee in the transaction until the cannabis or cannabis product reaches the distributor conducting the final quality assurance review. Each party to the transaction, from the original sale from the cultivator, to the final sale or transfer to the distributor, is relieved of its liability for the cultivation tax by receiving a proper receipt for payment of the cultivation tax from the next party in the transaction.

This email is intended to give you an overview of some of the requirements for cannabis distributors and does not address all requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses, or contact us at www.cdtfa.ca.gov/contact.htm.

New Emergency Regulation for Cannabis Distributors and Retailers Requires California Cannabis Track-and-Trace

 

New Emergency Regulation for Cannabis Distributors and Retailers Requires California Cannabis Track-and-Trace

The California Department of Tax and Fee Administration (CDTFA) recently adopted emergency Regulation 3702, California Cannabis Track‑and‑Trace, which requires distributors and retailers to enter the wholesale cost and the retail selling price of cannabis or cannabis products into the California Cannabis Track-and-Trace (CCTT) system. The emergency Regulation 3702 is now in effect.

The Medicinal and Adult-Use Cannabis Regulations and Safety Act and regulations adopted by the Bureau of Cannabis Control (BCC) require all commercial cannabis activity be recorded in the CCTT system. Distributors and retailers that obtain an annual license with the BCC must begin recording commercial cannabis activity in the CCTT system. In addition to the existing requirements, each licensee must now enter the following information related to the cannabis excise tax.

___________________________________________________________________________________________________________

Emergency Regulation 3702
Text of California Code of Regulations, Title 18, Division 2, Chapter 8.7, Section 3702
(A new regulation to be added to Cal. Code Regs., tit. 18, div. 2)

Regulation 3702. California Cannabis Track-and-Trace.

A distributor or cannabis retailer that is required to record commercial cannabis activity in the California Cannabis Track-and-Trace system pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (commencing with section 26000 of the Business and Professions Code), shall enter into the California Cannabis Track-and-Trace system specified information as follows:

(1) Wholesale Cost. When cannabis or cannabis products are sold or transferred to a cannabis retailer in an arm’s length transaction, the distributor and cannabis retailer shall enter the cannabis retailer’s wholesale cost of the cannabis or cannabis products.
(2) Retail Selling Price. When cannabis or cannabis products are sold in a retail sale, the cannabis retailer shall enter the retail selling price of the cannabis or cannabis products.

Note: Authority cited: Section 34013, Revenue and Taxation Code. Reference: Sections 34010,
34011 and 34015, R

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Cannabis Distributors
A distributor is required to enter into the CCTT system the retailer’s wholesale cost of the cannabis or cannabis products that is sold or transferred to a retailer in an arm’s length transaction.

In an arm’s length transaction, the distributor is required to calculate the average market price of the cannabis or cannabis products, which is the retailer’s wholesale cost plus a mark-up established by the CDTFA. The wholesale cost used to calculate the average market price is the amount entered into the CCTT system.

Cannabis Retailers
A cannabis retailer is required to enter into the CCTT system:

  • The wholesale cost of the cannabis or cannabis products. The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products in an arm’s length transaction and is the amount used to calculate the average market price.
  • The retail selling price of the cannabis or cannabis products when the product is sold at retail.

For More Information
This Special Notice is intended to give you an overview of some of the requirements for cannabis distributors and retailers and does not address all requirements for the Cannabis Industry. We encourage you to read our online Tax Guide for Cannabis Businesses at www.cdtfa.ca.gov/industry/cannabis.htm.

CalCannabis Cultivation Licensing (CalCannabis), a division of the California Department of Food and Agriculture administers the CCTT system. For more information visit CalCannabis at www.cdfa.ca.gov/is/mccp/ or call 1‑833‑CALGROW (1‑833‑225‑4769) with your specific questions regarding the CCTT system.

If you have additional questions regarding the excise or sales tax requirements, please call our Customer Service Center at 1‑800‑400‑7115 (TTY:711) Monday through Friday, 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays.

 

Cannabis Distributors: How to Determine the Retailer’s Wholesale Cost

Cannabis Distributors: How to Determine the Retailer’s Wholesale Cost When Calculating the Average Market Price

As a cannabis distributor, you are required to collect the cannabis excise tax from retailers that you supply based on the average market price of the cannabis or cannabis products. In an arm’s length transaction, you calculate the average market price by using the retailer’s wholesale cost of the cannabis or cannabis products plus a mark-up predetermined by CDTFA. The wholesale cost includes:

• The amount the retailer paid for the cannabis or cannabis products, and
• The transportation charges to the retailer.

In addition, you must add back any discounts or trade allowances given to the retailer. A discount or trade allowance is when there are price reductions, or allowances of any kind, whether stated or unstated. Examples include, but are not limited to, short-term promotional incentives, such as receiving a discount or allowance for early payment, placing a large order, or having preferred-customer status. However, if the selling price is given to all retailers, the amount of the reduction is not considered a discount or trade allowance and may be excluded from the retailer’s wholesale cost.

Example
You sell cannabis products to a retailer in an arm’s length transaction for $1,500 plus a $100 transportation charge. You allow the retailer a 25 percent discount if the retailer pays you when the cannabis products are delivered. The retailer earns the 25 percent discount of $375 ($1,500 x 25%), reducing the cost to $1,125 ($1,500 – $375). However, the retailer’s wholesale cost used to calculate the average market price in an arm’s length transaction is $1,600, calculated as follows:

Cost of Discounted Cannabis to the Retailer $1,125
Add Back 25% Discount $375
Transportation Cost $100
Retailer’s Wholesale Cost $1,600

The average market price and the cannabis excise tax due are calculated as follows:

Retailer’s Wholesale Cost 1,600
Mark-up ($1,600 x 60%*) $960
Average Market Price ($1,600 + $960) $2,560
Excise Tax Due ($2,560 x 15%) $384

For this transaction, you collect $384 in cannabis excise tax from the retailer plus your charges of $1,125 for the cannabis products and $100 for the transportation charge.

* This example assumes a mark-up rate of 60 percent (0.60). You must use the rate in effect at the time of sale. The current rate can be found on our website.

This email is intended to give you an overview of how to determine the retailer’s wholesale cost and does not address all requirements for the cannabis industry. For more information, we encourage you to read our online Tax Guide for Cannabis Businesses, or contact us.

WILL CALIFORNIA LOWER THE CANNABIS TAX RATES?

WILL CALIFORNIA LOWER THE CANNABIS TAX RATES?

Legalization has been a bumpy road for California cannabis operators, and since January 1, owners are learning that it also comes at a price. The state’s steep taxes on cannabis businesses – with effective tax rates as high as 57% for some cannabis activities – have many operators bracing, and calling for a reduction in these so-called sin taxes. Consumers are also encountering price increases — prices are up about 15% compared to last year.

Cannabis operators are pushing lawmakers to scale back these taxes and prevent business owners from being tempted to remain in the black market because of the high costs of legalization. In response to advocacy efforts from the cannabis industry, California lawmakers proposed a bill this month that would drastically reduce excise and cultivation taxes on legal cannabis for a period of three years. As one of the bill’s authors, Rob Bonta, is quoted in the LA Times, lowering taxes on legal cannabis operators would be a way of “keeping customers at licensed stores and helping ensure the regulated market survives and thrives.”

In particular, the bill, AB 3157, would temporarily remove the state tax on cannabis cultivation, which is currently set at $9.25/oz for flowers and $2.75/oz for leaves. Additionally, it would lower the excise tax on cannabis purchases from 15 to 11 percent. Both of these changes would be welcome steps for the legal cannabis industry: the excise tax is one of the more confusing and onerous burdens on legal cannabis operators, so having it lessened would be particularly well-received. However, even after these changes, California’s effective tax rate would still be comparable to Colorado’s during its early legalization struggles. Therefore, it may not be enough to ward off the black market entirely.

Colorado took a similar approach when they rolled back cannabis taxes after operators were being pushed into the black market. As the Washington Post reported, in the immediate aftermath of legalization Colorado’s up-to-33% effective tax rate created a large market for illicit goods: “Camouflaged amid the legal medicinal and recreational marijuana market, the ever-adaptable underground market thrives. Some in law enforcement and on the street say it may be as strong as it’s ever been, so great is the unmet local and visitor demand.” California lawmakers are aware of the risks of overtaxation and the resulting effects.

Special Thanks to MARGOLIN & LAWRENCE for Content Share

 

California Cannabis Taxes and how they are shared

New Information –CDTFA has proposed adoption of cannabis taxes Regulation 3700, Cannabis Excise and Cultivation Taxes.

On November 8, 2016, California voters approved Proposition 64, Control, Regulate and Tax Adult Use of Marijuana Act. To align the requirements for licensing and regulation of medicinal and adult-use of commercial cannabis, Proposition 64 has been recently amended by Senate Bill (SB) 94. Among other changes, SB 94 repealed the Medical Cannabis Regulation and Safety Act (MCRSA) and included certain provisions of the MCRSA in the licensing provisions of Proposition 64. The consolidated provisions are now known as the Medicinal and Adult-Use of Cannabis Regulation and Safety Act (MAUCRSA), and the term marijuana was changed throughout the law to the term cannabis.

Effective November 9, 2016, certain sales of medicinal cannabis are exempt from sales and use tax. (See the Retailers section, under the heading, Proposition 64 Exempts Certain Medical Cannabis Sales from Sales and Use Tax)

Beginning January 1, 2018, two new cannabis taxes apply as follow:

  1. A 15 percent excise tax is imposed upon purchasers of cannabis and cannabis products. Retailers of cannabis and cannabis products are required to collect the 15 percent excise tax from the purchaser based on the average market price of any retail sale and pay it to their cannabis distributor.
  2. A cultivation tax is imposed upon cannabis cultivators on all harvested cannabis that enters the commercial market. Cannabis cultivators are required to pay the cultivation tax to either their distributor or their manufacturer. The rate of the cultivation tax is:
    • $9.25 per dry-weight ounce of cannabis flowers that enter the commercial market, and
    • $2.75 per dry-weight ounce of cannabis leaves that enter the commercial market.

Senate Bill (SB) 94, which was approved by the Governor on June 27, 2017, amended several provisions in the cannabis tax law as enacted by Proposition 64. SB 94 provides that:

  • Distributors must collect the cannabis excise tax from retailers and the cultivation tax from cultivators or manufacturers.
  • Distributors must report and pay the cannabis excise tax and the cultivation tax to the CDTFA.

Sign up for the CDTFA Cannabis Outreach email listserv to receive the latest news on cannabis tax compliance and related issues like CDTFA-issued special notices and news releases.

Helping your business succeed is important to the CDTFA. To help you better understand the tax obligations specific to your cannabis business, we have created this guide detailing the tax issues and important information relevant to your industry.

Medical Cannabis In a Jar

How to Use This Guide

Each section of this guide contains important information relevant to cannabis businesses. The Getting Started section provides key resources related to registration, filing returns, account maintenance, and other information cannabis business may need.

The Distributors section covers topics related to the general application of tax to purchases and sales by distributors.

The Retailers section covers topics related to the general application of tax to purchases and sales by retailers. It also has information on exemptions that retailers may qualify for and the exemption certificates required.

The Cultivators section covers topics related to the general application of tax to cultivators and processors, the available exemptions and the exemption certificates required.

The Manufacturers section covers topics related to the general application of tax to purchases and sales by manufacturers.

Lastly, the Resources section provides links to useful information, including special notices web-based seminars, publications, statutory and regulatory information, and access to assistance from our Customer Service Representatives.

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